Fortescue mulls infrastructure options

Fortescue Metals Group
has turned to Macquarie Capital for advice on a potential partial sale of its rail and port infrastructure business as it looks for ways to reduce its $US10 billon debt burden.

The miner, which holds its annual meeting in Perth on Wednesday, is still considering various asset sales options.

Street Talk can reveal that Macquarie is talking with
QR National
,
Atlas Iron
,
Brockman Resources
and Gina Rinehart about optimising their combined port and rail infrastructure in the Pilbara using Fortescue’s existing assets. Crucially, it wants to know what they’re prepared to pay for access.

Fortescue’s infrastructure assets are housed in a separate group called The Pilbara Infrastructure. Atlas Iron and Brockman Resources are studying the construction of a new railway line with QR National, but with the iron ore outlook now more cloudy, it would make more sense to pay $20 or so a tonne to access the Fortescue line than it would to spend at least $3 billion building a new line.

All three of those groups have rights to their own port slots at Port Hedland, but there are benefits of a deal under which Fortescue expands its facilities at Anderson Point and the third parties use their allocated tonnages to ship through there rather than building their own facilities. Atlas’s plans to get to 47 million tonnes of exports are dependent on someone stumping up $2 billion to build port facilities at Utah Point, as well as QR agreeing to underwrite an investment in a third party rail.

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Macquarie has already sounded out Rinehart about whether the $10 billion Roy Hill project could look to do the same to slash the amount of debt it requires and, perhaps more importantly, the amount of time it will take to get her project to market.

Sources suggested groups like Brookfield and a North American railway operator could also be interested in buying a stake in Fortescue’s infrastructure. However, investors in Fortescue would want to be sure that its operating costs do not rise too much as a result of such a deal.

Industry sources are sold on the economic benefits such a powerful alliance would afford. Observers have long argued that the increasingly congested Port Hedland needs a unifying force to maximise efficiencies at a time when Australia’s competitiveness is increasingly under the microscope.

The problem to date has been one of trust, with Andrew “Twiggy" Forrest destroying a lot of it by charging juniors exorbitant access fees in the early days of his company. And with the emphasis from Fortescue still around price, many are sceptical that a suitable outcome will be achieved. It’s a deal that makes so much sense, some participants in recent talks joke, that it is unlikely to ever happen. It’s just too logical.